Question

(a) On July 1, Lopez Company paid $2,300 for six months of insurance coverage. No adjustments have been made to the Prepaid Insurance account, and it is now December 31.
(b) Zim Company has a Supplies account balance of $7,200 at the beginning of the year. During the year, it purchased $3,100 of supplies. As of December 31, a physical count of supplies shows $1,350 of supplies available.

Prepare the year-end adjusting entries to reflect expiration of the insurance and correctly report the balance of the Supplies account and the Supplies Expense account as of December 31

Answer 1

Explanation:

The adjusting entries are as follows

1.  Insurance expense A/c Dr $2,300

                    To Prepaid insurance A/c $2,300

(Being the insurance expense is recorded)

The computation is shown below:

= $2,300 ÷ 6 months × 6 months

= $2,300

2.  Supplies expense A/c Dr $8,950

                 To Supplies A/c $8,950

(Being supplies account is adjusted)

The supplies expense is computed by

= Supplies opening balance + purchase made - supplies on hand

= $7,200 + $3,100 - $1,350

= $8,950